Is PPFAS right to value Noida Toll Bridge lower than market price?

The Allahabad High Court made the Delhi-Noida-Direct Flyway toll-free as it feels that Noida Toll Bridge Company Ltd. has collected a surplus of Rs. 578 crores after accounting for operating costs. Naturally, the market reacted to this news and the price fell by about 20% (the maximum that it can fall).

PPFAS mutual fund holds about 2.77% of this stock. It sent a note to investors on 26th Oct stating that

The valuation committee will decide on the valuation of the stock and its effect on the NAV tomorrow by taking into consideration the additional information that will be available in public domain.

In another note issued on 27th Oct, it said,

  • The shares of Noida Toll Bridge Company Ltd were locked in lower circuit today and shares did not trade freely as there were more sellers than buyers.
  • To be conservative, we are marking the price of this security down by two more market circuits i.e. 20% & 10% from today’s closing price.
  • Whenever the shares start trading freely on the stock exchanges, we will revert back to the market price method of valuation at that time.

So it valued the stock about 30% lower than its last closing market value.

The impact of the NAV is not significant, but is this within the rules?

SEBI has a mutual fund regulations manual updated 6th May 2014. The 8th schedule in this document refers to valuation procedures (page 90).

Let me quote a few rules:

“The valuation of investments shall be based on the principles of fair valuation i.e. valuation shall be reflective of the realizable value of the securities/assets. The valuation shall be done in good faith and in true and fair manner through appropriate valuation policies and procedures”.

“The responsibility of true and fairness of valuation and correct NAV shall be of the asset management company, irrespective of disclosure of the approved valuation policies and procedures i.e. if the established policies and procedures of valuation do not result in fair/ appropriate valuation, the asset management company shall deviate from the established policies and procedures in order to value the assets/ securities at fair value:

Provided that any deviation from the disclosed valuation policy and procedures may be allowed with appropriate reporting to Board of Trustees and the Board of the asset management company and appropriate disclosures to investors”.

While those (among others) are the rules, the following are only guidelines!

The securities shall be valued at the last quoted closing price on the stock exchange.

A non-traded security is one that did not trade for 30 days! In such case, they can be valued on “good-faith”. The “guideline” is to use market closing price for other securities.

The stock in question is not a “non-traded security”. Is it a “thinly traded security”?

The rule here is

When trading in an equity/equity related security (such as convertible debentures, equity warrants, etc.) in a month is less than Rs. 5 lacs or the total volume is less than 50,000 shares, it shall be considered as a thinly traded security and valued accordingly.

In such a case,

Thinly traded securities as clarified in the guidelines shall be valued in the manner as specified in the guidelines issued by the (AMC) Board

Then a discount to the price can be applied. The SEBI rules does allow the AMC board ample elbow space to define valuation rules, but did it jump the gun to not use market price?

At the time of writing Noida Toll Bridge Company Ltd. is neither a non-traded security or a thinly traded security. The only assumption that I can make  is that its board expects the stock to become a thinly/non-traded security and therefore applied a discount to the price.

Is this kind of valuation illegal? No, I don’t think so. The rules do allow it. Debatable, arguable, yes but difficult to call it illegal.

Is this kind of valuation unethical? No. For existing investors, it is better to use a discounted price. Those who redeemed yesterday would have felt a small pinch, but that is how the cookie crumbles!

Note: I have merely started the rules in the post and how it allows an AMC board to take such decisions. If you disagree, please quote specific SEBI regulations to let me know if I missing something.

If you have a problem with PPFAS, suggest you use the SEBI SCORES complaint system.


PPFAS has now sold all its stake in Noida Toll Bridge Company Ltd. says their recent note. Thanks Mahesh MIrpuri for pointing this out.

Do share if you found this useful

Create a "from start to finish" financial plan with this unique open-source robo advisory software template

 Don't like ads but want to support the site? Subscribe to the ad-free newsletter! 
You will get the full post-ad-free delivered to your inbox for Rs. 3000 a year. Follow this link to read the terms and sign up! 

About the Author M Pattabiraman author of freefincal.comM. Pattabiraman is the co-author of two books: You can be rich too with goal based investing and Gamechanger. “Pattu” as he is popularly known, publishes unbiased, promotion-free research, analysis and holistic money management advice. Freefincal serves more than one million readers a year with numbers based analysis on topical issues and has more than a 100 free calculators on different aspects of insurance and investment analysis, including a robo advisory template for use by beginners. Contact information: freefincal {at} Gmail {dot} com He conducts free money management sessions for corporates (see details below). Previous engagements include World Bank, RBI, BHEL, Asian Paints.

Content Policy

Freefincal has original unbiased, conflict-of-interest-free,  topical reports, reviews, commentary and analysis on all aspects of personal finance like mutual funds, stocks, insurance etc. All guest authors and contributors to the site also do not have any conflict of interest. If you find the content useful, please consider supporting us by (1) sharing our articles and (2) disabling ad-blockers for our site if you are using one. No promotional content We do not accept sponsored posts and link exchange requests from content writers and agencies. This is our privacy policy Our website is non-profit in nature. The revenue from the advertisement will only be used for hosting charges, domain registration charges, specific plugins necessary for traffic growth and analytics services for search engine optimisation.
Want to conduct a sales-free "basics of money management" session in your office?
I conduct free seminars to employees or societies. Only the very basics and getting-started steps are discussed (no scary math):For example: How to define financial goals, how to save tax with a clear goal in mind; How to use a credit card for maximum benefit; When to buy a house; How to start investing; where to invest; how to invest for and after retirement etc. depending on the audience. If you are interested, you can contact me: freefincal [at] Gmail [dot] com. I can do the talk via conferencing software, so there is no cost for your company. If you want me to travel, you need to cover my airfare (I live in Chennai)

Connect with us on social media

Do check out my books

You Can Be Rich Too with Goal-Based Investing

You can be rich too with goal based investingMy first book is meant to help you ask the right questions, seek the right answers and since it comes with nine online calculators, you can also create custom solutions for your lifestyle! Get it now.  It is also available in Kindle format.
Gamechanger: Forget Startups, Join Corporate & Still Live the Rich Life You WantGamechanger: Forget Start-ups, Join Corporate and Still Live the Rich Life you wantMy second book is meant for young earners to get their basics right from day one! It will also help you travel to exotic places at low cost! Get it or gift it to a young earner

The ultimate guide to travel by Pranav Surya

Travel-Training-Kit-Cover This is a deep dive analysis into vacation planning, finding cheap flights, budget accommodation, what to do when travelling, how travelling slowly is better financially and psychologically with links to the web pages and hand-holding at every step.  Get the pdf for ₹199 (instant download)

Free Apps for your Android Phone

All calculators from our book, “You can be Rich Too” are now available on Google Play!
Install Financial Freedom App! (Google Play Store)
Install Freefincal Retirement Planner App! (Google Play Store)
Find out if you have enough to say "FU" to your employer (Google Play Store)

Blog Comment Policy

Your thoughts are vital to the health of this blog and are the driving force behind the analysis and calculators that you see here. We welcome criticism and differing opinions. I will do my very best to respond to all comments asap. Please do not include hyperlinks or email ids in the comment body. Such comments will be moderated and I reserve the right to delete the entire comment or remove the links before approving them.
Updated: September 4, 2018 — 5:33 am


Add a Comment
  1. That timely post. 🙂 I found the move ethical or logical, just didn’t know if it was legal or not. Now I know it.

    Perhaps this is the issue with mid cap funds, that we need to be aware of.

  2. For the sake of propriety, request you add a disclosure line : invested when reporting about ethics or any other legal aspects in your blog

    1. My holdings are not relevant in a post where I quote rules (not ethics) and point out what an amc can or cannot do.

Leave a Reply

Your email address will not be published. Required fields are marked *